A tale of two cities

Nearly 10 months after the first stirrings of the Asian. financial crisis, 'fianjin is assessing its impact on the local economy.

"We are in an uneasy situation because of the financial crisis," says Chen Liming, Deputy Director of Tianjin Commission of Foreign Economic Relations and "I-rade (Cofert). "Our tar-get in 1998 is to achieve the same level of foreign investment as last year. After all, many foreign enterprises in Tianjin have reached a certain scale and if we can help them to post profits, their exports will increase further and they might consider investing more.

Currency devaluation

This Would appear to be all optimistic vision given what is happening in the region. According to official figures for the first 10 months of 1997 contracted foreign investment reached Yn3.6bn, down 5.8 per cent on a same period the year before. The downturn is even more apparent at Tianjin Economic:-"1-echnological Development Area (TI_;DA ). This 33 sq km zone, authorised by the State Council in 1984, has already attracted more than US$9bn of investment in foreign funded projects. But the contracted foreign investment of US$1.2bn during the first "I1 months of last year was doss n l 1.8 per cent year-on-year.

"These setbacks should not deflect attention away from the city's strengths, argues Cofert, especially the robust growth, of exports from the port city. "VVe saga' an increase of about 25 per cent last year when the value of our exports reached US$5bn, some US$1bn .morethan in 1996," says Chen Liming. "Our target is to reach US$6bn in 1998".

The difficulty is a dependence on China's neighbouring countries. Asia accounts for 60 per cent of all Tianjin's contracted foreign investment, amounting now to US$20bn. South. Korea is fourth after Hong Kong, the US and Japan. among the top foreign investors. "The devaluation of the South Korean currency will certainly have a negative influence on the investments originating from there," admits Chen Liming.

However, the city still enjoys an image as a fast-growing area with good management and working conditions. It is better equipped than most other regions or cities, being one of just four municipalities in China and with one of the better man-aged development zones. In addition to TEDA, a bonded port area was given the go-ahead in 1991, becoming a centre for entreput trade in. northern China. In 1986 Tianjin also became the centre of the Bohai Bay Economic Ring, an inter-regional net-work linking the cities in Hebei, Shandong and Liaoning provinces.

Quality labour force

To date, no fewer than 200 multinationals have invested. in Tianjin in more than 300 projects. Leading investors include Motorola, Coca-Cola, Nestle, Samsung and Otis Elevators. Proctor & Gamble has selected Tianjin to be the site of its biggest factory in the world. Foreign enterprises manufacturing in Tianjin are subject to a 15 per cent enterprise income tax (EIT) if they are located in the major zones; otherwise a 24 per cent Eft is imposed. Fooreign firms not engaged in manufacturing incur a 30 per cent EIT regardless of location.

Meanwhile, northern Chinese provinces use its port facilities for trading their goods. "Foreign. investors come to Tianjin because they can make money here by focusing on. manufacturing," says Chen Liming. "Other sec-tors, such as real estate which have attracted a lot of foreign investment in other places, are not as profitable. In Tianjin we help foreign investors to reach the Chinese market. If you put Beijing and Tianjin together, you have a market of 20 million people and a region with a huge consumption capacity."

One of the city's main assets is the availability and cost of qualified labour. Every year the city turns out 110,000 high school graduates and 10,000 university graduates. The loss est monthly salary in Tianjin for an employee of a foreign manufacturing company is about Yn400, the average -wage for a new graduate recruit being Ynl,000. At managerial level, salaries of Yn2,000-3,000 are common, rising to Yn5,000 for highly qualified. managers with specialised skills. At TFDA the basic average is rather higher than in the city proper Yn700-1,000. However, workers here often have to endure a laborious commute.

Another advantage is a developed infrastructure. Tianjin is one of China's major transportation hubs, at the junction of Beijing-Shenyang and Beijing-Shanghai railway lines. It has a 4,000krn highway network, one of the most successful examples being the completion a few. years ago of the Jing-Jin-Gu expressway that has cut the journey' time between Beijing and Tianjin to-just 90 minutes.

However much remains to be done. In 1994 Tianjin was one of 18 cities selected by the central government to undertake reform experiments, especially in the areas of bankruptcy and state enterprise management. But the city is fighting to cope with the economic and social consequences of the reforms. The state sector still employs more than 70 per cent of all workers, a legacy of the city's reputation for being slow to restructure. Some analysts put this down to its proximity to the political centre of Beijing. However, in common with other cities, many state-owned enterprises have closed their doors or partially shut doss'n, a reality that official statistics don't vet reflect fully.

A city of contrasts

During a visit to Tianjin earlier this year, then vice premier Zhu Rongji was said to have expressed surprise at the low official figure of 220,000 laid off workers in the municipality. Whatever the true figure, an additional 10,000 government officials are expected to be laid oft or transferred after the recently approved reorganisation of the administration.

Foreign investors are said to be interested in the possibilities offered by the state sector reform. two years ago, the Australian brewer Foster's took over a bankrupt Tianjin beer company, success-fully marketing a new brand in the process. – "In the course of economic reform, we are encouraging foreign enterprises to purchase parts of state-owned enterprises," says Chen Liming. "Some state-owned enterprises have good manufacturing machines but lack capital flow or have some heavy loan burden. Foreign investors can. help them make profits. Recently there' have been. talks involving [foreign investors and] loss-making state-owned enterprises in the paper industry and bicycle manufacturing. They are still negotiating."

The restructuring of the state sector is taking its toll on the more dvnamic parts of the city. For example, although TEDA is financially independent, handing over its revenues direct to the central government, its administration remains under Tianjin municipality. That means it has to contribute to the municipal welfarebill, annually pouring Yn70m towards an unemployment fund and even sup-porting the cite football club at a cost of Yn40m ?the club is reportedly paying off debts of Yn20m. The contrast between the bureaucratic city and TEDA, with its preferential policies is not Jost on foreign. investors. TEDA officials estimate that 20 to 30 companies have moved to the zone since 1948 from other parts of the municipality.

"What really attracts the companies is the preferential policies," explains Chen jianping, Vice Director of the Economic Development Bureau &- Industrial and Commercial Administration of TEDA, ?ut also the differences between the Tianjin government and 'I ED A which is more open and more willing to do things according to international practices. It is more efficient and transparent.?

A new coastal area

There are signs that the 'old Tianjin government as some TEDA officials call the municipality, resents the success of its fast growing upstart. But the is icier picture is more important and Tianjin is already preparing its next metamorphosis. It could come under a new plan recently submitted to the Beijing government. The aim is to create a new district under Tianjin municipality, a coastal area of "150-200 sq km along the sea coast with TEDA as its centre. "If this plan is approved,," says Chen lianping, "the central government might give more preterential policies to the development and more capital to invest in infrastructure and. facilities.I"'EDA represents one-quarter of the total revenue of Tianjin municipality, but according to the most conservative estimate this share could grow to halt of the municipal revenues if the coastal area is established."

Much will depend. on Beijing. The plan would establish Tianjin as the industrial centre of northern China, a position which Beijing also cherishes. Known for a reluctance to limit itself to being a cultural and political centre, the capital city is reportedly showing little enthusiasm for the new plan. "If there is a new coastal area under the Tianjin government, that `Don't be very helpful to Beijing," concedes a TEDA official. Co-operation rather than competition between Tianjin and Beijing would appear to be the best way forward, involving a closer integration of the two cities and their economic zones.

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